NICK BRUINING: ASIC puts DIY super advisers on notice over ‘unacceptable’ conduct after review of 100 cases

Following Your Money’s revelation of a big increase in complaints regarding self-managed superannuation funds, the corporate watchdog has released a stinging report that reveals significant issues with the sector.

Financial advisers who recommend SMSFs have been put on notice that the Australian Securities and Investments Commission will be ramping up surveillance of their activities.

The watchdog conducted a review of 100 files where SMSFs had been recommended to clients.

“We identified instances of financial advisers recommending retail clients establish an SMSF when an SMSF was not suitable and was likely to be detrimental to their lifestyle and retirement outcomes,” the report said.

“The conduct of financial advisers and their licensees that has led to this advice is unacceptable.”

Of the 100 files, 62 failed to demonstrate the advisers had met their legal obligations.

“Barely a third of advice files demonstrated compliance with the longstanding obligation for advisers to act in a client’s best interests,” ASIC’s report said.

Complaints to the Australian Financial Complaints Authority regarding SMSF advice soared by 95 per cent on the previous financial year, with nearly a third of all financial advice complaints linked to SMSFs.

Usually on the advice of a financial adviser, investors hope to do better by pulling their money out of large Australian Prudential Regulation Authority-regulated schemes and rolling their money into an SMSF.

In some cases, SMSF promoters use well-performing asset classes as a hook to entice people to switch super funds.

Josh Mennen, law firm Maurice Blackburn’s principal lawyer dealing with financial advice complaints, said people saw the spectacular returns on property, for example, and then saw someone promoting an SMSF arrangement to invest in property.

“They think that by moving the money across, they will come out much better off,” Mr Mennen said.

In many cases, conflicts of interest can also arise. It’s not only limited to property investments but can be linked to funds and managed investments tied to the SMSF adviser or their parent firm.

“While all licensees had policies managing conflicts of interest, in 24 of the 27 client files that raised concerns about client detriment, ASIC was concerned that the financial adviser failed to prioritise the interests of the client above their own interests or that of their advice licensee or an associate,” ASIC said.

One of the big selling points of an SMSF is that they provide more control for investors. It allows them to invest in assets which are not normally accessed by the large APRA-regulated funds.

These include residential real estate and alternatives like cryptocurrency, private equity and private credit. They are all investments that are classified by professional investment managers as “high-risk”.

Even SMSFs established to invest in conventional assets like shares, term deposits and managed funds are under scrutiny.

“There are other superannuation vehicles that may offer the desired level of control without the client also taking on the additional responsibilities, and in some cases additional costs, of an SMSF,” ASIC’s report said.

SMSF Association chief executive Peter Burgess said the report was an important reminder for advisers working in the sector to maintain professional standards.

But he also pointed out the files ASIC reviewed were not randomly selected.

“The findings are not representative of the broader quality of SMSF advice currently being provided across the sector, and this perspective is important,” Mr Burgess said.

“Nonetheless, the review highlights that more work is needed to ensure all consumers have access to competent, high-quality advice when making decisions about SMSFs.”

The SMSF Association also said assessing whether a consumer was, or would be, worse off as a result of using an SMSF was subjective in nature.

ASIC commissioner Alan Kirkland flagged increased focus on the SMSF sector, and has put advisers on notice.

“ASIC is considering a range of regulatory responses, including enforcement action, where we have significant concerns about poor and unacceptable financial advice,” Mr Kirkland said.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association.